M1 Finance Roth IRA review
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- No management fees (but includes miscellaneous fees)
- Build your own portfolio or choose from pre-selected portfolios
- Fractional investment in shares
About M1 Finance
M1 is a digital investment platform that also offers a service to borrow 35% of your investments and a checking account. Its investment service is free; unlike many other investment platforms, it does not charge a fee to manage your investments. Another key difference from other digital investment platforms is that it’s not a registered investment advisor, so its platform doesn’t provide much management of your account and most actions will be self-directed. M1 offers different investment accounts, including individual retirement accounts (IRAs) such as Traditional and Roth IRAs and non-retirement brokerage accounts.
M1 is a broker-dealer (aka brokerage) that buys and sells securities. It’s not a Registered Investment Advisor with the SEC. There are no human advisors, whether virtually or in-person, available through M1.
What are the benefits of M1’s Roth IRAs?
No management fees
There are no management fees for M1. Some digital investment platforms charge a percentage of the assets you keep on their platform. For example, for an investment of $10,000 and a service that charges 0.25% of your assets under management (AUM), your management fee would be $25.
While M1 doesn’t charge any management fees, it does charge fees for a number of services, such as outgoing account transfers and closing your M1 Roth IRA. If the no management fee is attractive to you, consider getting familiar with M1’s other fees, as they could add up, and potentially to more than what you would have paid for a service that just charges a management fee. Learn more about these other fees below.
Customize your own portfolios
When you set up a Roth IRA with M1, you can build your own portfolio made up of individual stocks, exchange traded funds (ETFs), or pre-selected investment holdings and allocations developed by M1 staff. This makes M1 more flexible when it comes to deciding how your money will be invested than many robo-advisor platforms out there while still providing you access to pre-selected portfolios if you do not know what to invest your money in, or want to have a mixture of both options on one platform. There are around 6,000 stocks and 100 pre-selected investments to choose from. See details below about M1’s portfolio options.
Not only will you be able to choose what goes into your portfolio, you’ll also be able to decide how you’ll allocate your money. On the M1 platform, you can set the percentage you want to invest in the stocks, ETFs, and/or the pre-selected investments you choose.
Fractional investment in shares
Since you can invest in individual stocks and decide what percentage of your investments you want invested in each particular stock, M1 enables fractional investments in shares. For example, if you have a portfolio made up of four stocks and you decide you want to allocate your deposits to invest evenly (25%) among the four stocks. So, when you deposit $500 into your Roth IRA account, the $500 will be invested evenly into the four different stocks. Let’s say one share of one of the stocks is $250, this means that you’ll only be investing in half of that stock since you’re only investing 25%, or $125, of your $500 total deposit.
M1 doesn’t initiate a rebalance of your portfolio without your instruction, except when money is deposited (added) or withdrawn (removed) from your account. You can also instruct for a rebalance to specific investments in your portfolio or to all of your investments. This provides you with more control of when your investments are rebalanced. M1 might be a good platform for those that like this level of control. On the other hand, if you decide to just make a one-time deposit or transfer and let your Roth IRA sit there and you’d like a platform to rebalance your investments for you, then M1 might not be right for you.
If you plan to make recurring deposits into your Roth IRA held at M1, then there’ll be automatic rebalances. When money is deposited into your account, M1's algorithm will look at your target portfolio setup and allocation, see where you might be under-weight, and put money in those areas to keep your portfolio in line with your asset allocation target and financial goals. M1 calls this process “Dynamic Rebalancing.”
Who is M1 good for?
- Hands-on investors that want to pick their own investments or invest in specific stocks (limited to 6,000 available stocks)
- Investors that like flexibility in choosing their own investments and/or pre-selected ones
- Investors that don’t want to pay a management fee or one based on AUM
- Investors comfortable with online interfaces and some technology-driven investment management
Who is M1 not for?
- Hands-off investors looking for active management of their accounts
- Investors that don’t want to bother with all of the service fees that could arise
- Investors that are looking for offline or human support. (M1 Finance is a digital, self-serving platform assisted with technology.)
- Investors looking for robust retirement planning tools
- Investors that are looking to see all of their investments, including those held outside of M1, in one place
Drilling into M1’s fees
Unlike many online investment platforms, M1 Finance doesn’t charge a fee for managing your money; however, it does charge fees for various items. See details below for the key ones related to Roth IRAs.
M1 Finance also offers a subscription program called M1 Plus at a $125 annual fee. The membership gives customers additional features on M1, but most of which are not related to investment accounts. For investing, the only added benefit is having access to a second trade window. Thus, the M1 Plus membership is more valuable if you use their full sweep of products.
The ETFs that you can directly invest in or within M1’s pre-built portfolios include fund fees. These fees are for managing a fund. These management fees range from 0.06%-0.20% of the fund’s AUM per year. For a $1,000 investment, a 0.15% fee is $1.50. The fees are automatically deducted by the fund.
M1 passes regulatory fees that the Securities Exchange Commission (SEC) charges to its clients. Regulatory fees occur when you sell a stock or ETF. Regulatory fees are often just a few cents.
Account transfer and withdrawal fees
While there isn’t a fee for rolling over or transferring an account from another institution to M1, there is a $100 fee for outgoing transfers from your M1 account to another account. There’s also a $100 fee for terminating your IRA held with M1. If your account includes mutual funds and those need to be sold, then there’ll be a $20 for the sale. If you have securities traded on foreign exchanges, there is a $50 fee to liquidate those securities. So, transferring your Roth IRA out of M1 could add up. Note: withdrawing from a Roth IRA could have tax implications, such as a penalty for when you take money out of your Roth IRA early. See IRS distribution rules and consult a tax advisor if you have questions.
Other money movement fees
Direct ACH deposits from and to the connected bank account you link with M1 are free. M1 charges $25 for domestic wire transfers and check requests. Returned ACH, checks, or wires and recalls all cost $30. Notices for changes and corrections to an in-progress ACH transfer costs $5.
Paper copy fees
If you want paper copies of statements, confirmations, and tax statements, those come with fees ranging from $2 to $5.
What goes into a M1 portfolio?
You decide what goes into your portfolio at M1. When you are signing up, you can build your own portfolio by creating and adding what M1 calls “pies” into your portfolio. Essentially, pies are groups of securities, divided into the percentages you set up. Each pie is meant to represent an investment strategy. Your M1 portfolio can be made up of multiple pies. Pies can include individual stocks from the 6,000 that’s available through M1, ETFs, and “expert pies” that are curated by M1 staff. Pies can include just stocks, ETFs, or expert pies, or a combination of them all.
You can edit your pies at any time. Note: changes to your portfolio will trigger sells and buys of your current investments.
M1’s expert pies
M1’s expert pies are made up of ETFs based on investing goals (e.g. Plan for Retirement), themes (e.g. Responsible Investing), and industries (e.g. Bio Tech) and risk tolerance (e.g. moderately aggressive). There are 7 levels of risk tolerance ranging from “Ultra Conservative” to “Ultra Aggressive.” Before committing, you can see details about each expert pie, including the holdings in the pies, return history, expense ratio (i.e. fund management fees), and how much the holdings earn in dividends. These pies are created by M1 staff and there are around 100 of them on the M1 platform.
How easy is it to do things at M1?
Opening a M1 Roth IRA account
You can set up a Roth IRA with M1 by opening one directly and making deposits towards it or by rolling over a 401(k) account with a former employer or transferring an IRA held at another institution. M1 requires an initial investment of $500 for Roth IRAs.
To transfer a Roth IRA, you will need to reach out to someone at M1. This cannot be done online. You’ll have to email M1 Support your most recent IRA statement. The process takes 5-7 days. To initiate a 401(k) or 403(b) rollover into a M1 Roth IRA, you’ll have to first open a Roth IRA account with M1 and then contact your current administrator to complete the rollover.
During the signup process, you’ll be asked to provide personal information, such as age, address, and social security number. All of this is standard required information for setting up investment accounts. The information is used for regulatory reporting and for investment qualifications.
Buying and selling investments
You can buy and sell stocks and ETFs on the M1 platform. There are trade windows you should be mindful of. The free membership only allows trading within the morning window. Trading in the afternoon is only available to Plus members. And even so, you must have a minimum of $25,000 with your Roth IRA if you want to trade in the afternoon window as well.
For those using the free membership, the trading window starts at 9am CST and ends when all trades for that window are executed. To get your trade within the trading window, your trade has to be initiated before 9am CST. When you put in a trade, the M1 platform will let you know when your next trading window is. You are also limited to one trade per day with the free membership. Generally, trades made during the trade window (e.g. at 9am CST) will not trade until the next morning if you use the free service.
Converting a SEP IRA or traditional IRA to a Roth IRA
You can initiate a conversion of another type of IRA into a Roth IRA by reaching out to M1’s support team. Conversions cannot be done on the platform and thus will be a manual process. There’s a $25 fee for IRA conversions. There may be tax implications for conversions. Do consult a tax advisor if you have questions.
Withdrawing or distributing from a M1 Finance Roth IRA
You can initiate a Roth IRA distribution on the M1 platform. Withdrawals take about 3-5 business days to process. The withdrawal amount will be sent to your connected bank account via an ACH transfer. There is no transaction fee for withdrawals into a connected bank account. Wire transfers or checks come with a $25 fee. There is a $100 fee for outgoing transfers from your M1 Finance account to another account. There’s also a $100 fee for terminating your IRA held with M1 Finance. Note: there may be tax implications for withdrawals (e.g. withdrawing from your Roth IRA early has penalty implications). Do consult a tax advisor if you have questions.
How is your Roth IRA protected at M1 Finance?
If M1 Finance must liquidate its assets, your Roth IRA investments are insured by the Securities Investor Protection Corporation (SIPC). Each “separate capacity” account is protected up to $500,000 with a limit of $250,000 for uninvested cash. For more details on what’s a “separate capacity” account, visit the SIPC site. The SIPC is a U.S. government creation but not an agency of the U.S. and insures all brokerage accounts up to $500,000. SIPC is funded by all of its member brokers/dealers. In some cases, it also protects against unauthorized trading or theft in the account. Market losses and promises of investment performance are not covered.
M1 Finance is registered with the Securities and Exchange Commission (SEC), an independent agency of the United States federal government that enforces and proposes federal securities laws and rules and regulates the securities industry. It’s also a member of the Financial Industry Regulatory Authority (FINRA), an independent non-governmental organization that writes and enforces rules that control registered brokers and broker-dealer firms in the United States.